DETROIT–A quarter of all vehicles financed in April carried rates of 0%, according to new data.
That type of attractive pricing is increasingly being dangled by auto lenders, including the manufacturers, and is making it increasingly easy to finance a new vehicle—if the borrower has strong credit. For those at the other end of the credit score spectrum, it’s becoming more difficult, according to one new report.
As credit unions looking to compete in the auto lending space right now as the economy slows from the coronavirus pandemic, lenders are offering loans for new and used cars that let borrowers delay making payments for up to four months—many carrying 0% interest rates with terms as long as seven years.
According to data from the car shopping website Edmunds, as cited by the Wall Street Journal, some 26% of loans for new cars purchased in April had 0% APRs, compared with about 5% of new-car loans in March.
“The generous financing offers are coming from credit unions and auto makers’ lending arms,” the Journal reported. “Both types of lenders extend loans to borrowers who on average have high credit scores above 700, according to credit-reporting firm Experian.”
Luring Customers In
Deals such as delays in starting to make payments and the low-rate financing appear to be working, according to the Journal, which said the number of consumers filling applications to connect with auto lenders, mostly for used cars, on LendingTree’s loan marketplace surged in mid-April after falling sharply in March.
Dealers told the Journal the generous financing deals are luring customers who had been thinking about buying but needed an extra push. The Journal cited one couple that had borrowed for a new car from an unnamed credit union, reporting they had been able to negotiate down their monthly payment to $375 from about $460.
In addition, the Journal reported Competiscan, a research firm, tracks the number of emailed solicitations touting auto loans that don’t require the borrower to start paying right away. Those solicitations more than doubled from mid-March through the end of April compared with the same period a year before, according to Competiscan.
- Hyundai Motor’s financing arm is offering 0% interest, as well as loans that don’t start charging borrowers until four months down the road.
- Chrysler Capital is offering loans that let buyers delay payments for 90 days on certain Jeep, Dodge and Ram models, and Lexus Financial Services has similar offers.
Some Lenders Pull Back
But other lenders are pulling back, according to the Journal, including Santander Consumer USA Holdings and Exeter Finance, which have many customers with lower credit scores. Exeter, for example, told some dealers at the end of March that loan applicants would need to earn at least $3,000 a month to qualify, according to a notice sent by the company.
In addition, PNC Financial Services Group has told dealers in March it would no longer accept loans to customers with credit scores below 660. It said in April that any loans made for more than 95% of the value of the car would be charged a higher interest rate, the Journal said.